Category Archives: subsidies

Black swans are hard to hunt

The Wall Street Journal‘s energy-roundup blog (essentially a clipping service for news about the energy business) is evolving into a fuller-service source for news about green capitalism, called “Environmental Capital.” Longer posts, more analysis, all that good stuff.

I’m struck by this piece on the failures of “moon-shot” work funded by the U.S. Department of Energy, vastly expensive efforts to design The Clean Automobile or The Non-Polluting Coal Plant.

In 2001, the DOE axed the Partnership for a New Generation of Vehicles, a government program that had been hatched with much fanfare nearly a decade earlier to help Detroit auto makers build an 80-mile-per-gallon “supercar.” The program drew loud praise from politicians such as Al Gore. But the government cancelled the partnership after having spent $1.5 billion on it.

“We do not want a car that succeeds in the laboratory and fails in the market,” the then energy secretary, Spencer Abraham, said at the 2002 annual auto show in Detroit. For all the federal largess, Motown’s auto makers hadn’t gotten a production hybrid car into showrooms. Meanwhile, Japan’s Toyota Motor Corp., which wasn’t allowed into the DOE program, already had its Prius hybrid on sale. The DOE launched a new program, dubbed Freedom Car, intended to spur a U.S. infrastructure for hydrogen-powered fuel-cell cars.

The WSJ writers conclude that magical solutions to complex problems are pretty hard to come by. Not that they don’t ever work — the history of technology is punctuated with game-changing innovations that solve a lot of long-standing problems (consider how pleased blubbery whales must have been when we figured out how to get oil out of the ground. They do happen. But they’re not the way to bet.

Solar-power showpieces

Radically different governments, same principle: spend pots of public money on solar power in hopes of … well, having a lot of economically unsustainable solar power.

In Ontario, the Globe and Mail reports, The Ontario Power Authority is pleased to have signed contracts for 250 megawatts of solar-power systems:

If all those who have promised to install panels follow through with their plans, Ontario will have some of the biggest solar farms on the planet, and an important “green” industry will be kick-started in the province.

Still, the solar-power generation business is essentially starting from scratch. At year-end only an infinitesimal 0.3 MW of sun-generated energy was being sold to Ontario’s power grid. The biggest completed project so far is a series of panels on the roof of the horse barn at the Canadian National Exhibition in Toronto.

The industry will be “kick-started,” but the contracts call for the providers to be paid 42 cents per kilowatt-hour, which is about seven times the going rate for electricity in hydro- and nuclear-rich Ontario most of the time. Even in high summer, the spot price for power rarely tops 30 cents a kilowatt-hour. Later in the story, a spokesman for one of the companies involved says 42 cents a kW/h is barely a break-even price for his operation.

So I guess the hope is that this subsidy, for a subsidy it is, will help Ontario-based companies work out some of the kinks in solar-energy generation and move in the direction of the going market prices.

But still — seven times the market price? Wouldn’t the money be better spent on nuclear technology, if energy’s what the government’s determined to spend it on?

AbuDhabi

Abu Dhabi, meanwhile, is happily announcing the imminent construction of a Dongtan-style concept town called Masdar City, which is supposed to be a carbon-neutral residence for 50,000.

Abu Dhabi sits on most of the UAE’s oil and gas reserves, ranked respectively as fifth and fourth in the world. Proven oil reserves on their own are expected to last for another 150 years.

But like most oil-producing countries, the UAE also wants to diversify to ease its traditional economic dependency on oil.

The zero-carbon city, part of the wider Masdar Initiative launched by the wealthy Abu Dhabi government in 2006, is also a flagship project of the global conservation group WWF.

Masdar chief executive Sultan al-Jaber described Masdar — Arabic for “source” — as as an entirely new economic sector fully dedicated to alternative energy, which will have a positive impact on the emirate’s economy.

It’ll have transportation pods like Star Trek turbolifts, according to Agence France-Presse, where you’ll be able to walk in and say your destination and it’ll take you there.

Cool. Practical? No. It can function only with massive ongoing subsidies from Abu Dhabi’s oil-drenched economy. That’s the opposite of sustainable.

No subsidies for car companies

That’s the word from the federal government, according to the Globe and Mail:

Ontario Premier Dalton McGuinty said this morning that Prime Minister Stephen Harper made it clear when he met with the premiers last Friday that Ottawa is not prepared to inject funding into specific projects.

“He told me very directly, ‘look, I operate at the macro level. We’ll cut taxes, offer some regional incentives, but we’re not prepared to take it one step down,’” Mr. McGuinty said.

He said the two leaders have a “fundamental philosophical difference” when it comes to addressing the economic slowdown that is taking its biggest toll on a manufacturers in Ontario and Quebec.

“They think you cut taxes, sit back and allow economic fortunes to kind of play themselves out,” Mr. McGuinty said. “I think we have a heavy responsibility and that responsibility is to find ways to provide supports to those who are losing their jobs and provide incentives to businesses to make additional investments to make them stronger.

As if the businesses, especially automakers, don’t have the incentives to make those investments themselves.

I can see the argument that sometimes governments have to compete with different subsidy packages when major businesses are deciding where to locate new plants — if Ford is trying to decide whether to put a $2-billion, 3,000-job plant in Ontario or Illinois or Kentucky and a $50-million R&D subsidy fund might make the difference, I can understand why it’d be tempting for a premier to provide it. I don’t think it’s a good idea, but I get where it comes from.

Writing cheques to multibillion-dollar corporations — using money taken from individuals and much smaller companies — just to carry on business as they normally would, though, is crazy talk. Staying out of their way is the best investment a government could make.

The government’s giving away free money …

… and hardly anybody noticed (PDF), according to a market-research report the government released.

Canada’s ecoENERGY program offers grants of up to $5,000 for home renovations that improve energy efficiency — new windows, high-efficiency, heating, that kind of thing. I don’t think much of the way the program is designed, but the general idea has merit: energy-inefficiency and climate change affect all kinds of things the government pays for (the health effects of pollution, for instance), and it’s reasonable to try to avoid some of the costs by helping pay to reduce the extent of the problem.

But it only works if people take you up on it, and people will only take you up on it if they know about it, and Environics says the word’s not getting out:

There is a moderate level of awareness of the ecoEnergy Home Retrofit Grant, with three in ten (31%) Canadians and a similar proportion of homeowners (32%) who say they have heard of this program. Awareness is higher among those recalling the radio advertising (60% vs. 25% of non-recallers), although it is unclear the extent to which the advertising led to this higher level of awareness (it may be that those who are aware of the grant were more apt to notice the advertising). In particular, four in ten (40%) ad recallers say they have never heard or seen anything about the Home Retrofit Grant, which may be related to the relatively limited proportion of ad recallers who remember this message from the advertising.

There’s also this fun tidbit:

Canadians are more negative than positive about the federal government’s performance on the environment, with one-quarter (25%) rating it as generally good, compared to four in ten (40%) who rate it as generally poor, and 31 percent who give a neutral rating. Those who recall the recent ecoEnergy Home Retrofit Grant radio advertising are more likely to express a positive opinion, although caution is recommended against assuming a causal link, since it may be that those who are most supportive of the federal government’s performance in this area are also more likely to have noticed the recent advertising. In terms of the federal government’s performance overall and in relation to providing information and services to the public, Canadians tend to give a mixed assessment, neither of which differ significantly by recall of the recent advertising campaign.

Some kind of a beginning

Possibly the United States is starting to turn the corner on energy efficiency. Not there yet, but the Energy Bill President George W. Bush has signed is a beginning.

It is, like a Farm Bill, too complex an omnibus for one human brain to grasp. You have to study it in chunks, so many disparate elements does it draw together. Phasing out incandescent bulbs by 2020! Ethanol in the gasoline! Fuel-efficiency standards for cars! Renewables research! What would you like? A bit of it’s in there.

The ethanol stuff — a federal mandate for up to 15 billion gallons (which is a lot) by the middle of the next decade, and a total of 36 billion gallons of non-corn-ethanol renewable fuels by 2022 — is basically, as one commenter at Green Car Congress says, liquid pork, possibly better news for farmers than even the straight agricultural subsidies the U.S. federal government hands out. Doubtless a massive ethanol mandate was the only way to get the thing through the farm-staters in the House of Representatives.

There is much to be dissatisfied about in the bill, since it’s essentially a subsidy-and-regulation package rather than an effort to shift the market toward more sensible choices by making people pay the costs of their externalities. Eliminating electricity subsidies, for instance, would be a much better way to get people to switch away from incandescent lightbulbs than simply imposing an efficiency standard by fiat that only compact fluorescents can currently meet.

But on balance, there’s more good than bad. You have to start somewhere.

Not the bomb

While we’re discussing parallels between the climate-change fight and the Second World War, here’s a more valid one from Andrew Sullivan:

Don’t conservatives understand that the best solution is for government to provide market incentives for new technologies, rather than trying to come up with the solution itself? Sure, some basic research support – but then leave it to the private sector to generate new ideas, and the market to see which ones will fly.

To decide which politician deserves your vote on environmental grounds…

Find out which politician is promising a Manhattan Project for some technological innovation. If you want real progress, vote for his or her opponent.

I think a comparison like that is useful for scale, but the parallel doesn’t extend beyond that. The Manhattan Project had a very specific technical end: coming up with a fissionable nuclear weapon the Allies could drop on some people. The environmental challenge is much broader, has no single obvious technical solution, and depends on a vast number of people voluntarily changing their behaviour, not meeting a specific military need. When Fermi and Oppenheimer and Feynman had a bomb finished, they knew they were done. This isn’t going to work like that.

Of course, I bet a lot of people not promising Manhattan Projects are still promising ethanol mandates and whatnot. Don’t trust them, either.

ecoUH-OH

So we bought a house in Ottawa. It’s a house with a lot of old stuff in it — old wooden trim, old light fixtures, old stucco on the outside. Old insulation. And an old gas boiler in the basement, heating water to circulate in the old radiators.

You don’t need to be an engineer to know that a 26-year-old boiler with an open pilot light that runs 24/7 isn’t exactly the green-friendliest appliance on the block, and we decided that while getting it updated wasn’t our No. 1 priority (that was replacing the kitchen and all the old appliances in it, and taking out the asbestos-laden insulation in the attic, on which more later), it was on the list.

At a minimum, though, we wanted to get it inspected to find out just how bad the thing is and to find out, if nothing else, that the boiler is safe.

The heating contractor came yesterday evening, drilled a pinhole in the venting duct and stuck a probe in there. Before activating the probe, the guy told me that if the contents of the duct included more than 100 parts per million of carbon monoxide, he’d have to “red-tag” it as being unsafe to operate. Anything over 50 parts per million in the ambient air will get the fire department to order you out of the house, he said, and if your boiler is spitting out gases quite that poisonous, it’s only a matter of time.

He fired up the handheld computer the probe was attached to. Waited. Watched some numbers climb. Flipped through a couple more screens.

“Huh,” he said, blinked and shook his head. He extracted the probe, waved it in the cool air, reset the computer, started over.

“Huh,” he said again.

Turns out the boiler is safe, amazingly so given its age. Very low carbon monoxide content in the gases coming out. Unfortunately, it’s so safe precisely because it’s so monstrously inefficient. It’s burning so incredibly hot that all the dangerous products of combustion are being obliterated before they get anywhere — specifically, before they ride the tide of that incredible heat all the way along the duct, up the chimney and out the roof.

Out of the box — this is back when I was a small child — the boiler was maybe 75-per-cent efficient. Now, it’s much, much less. Ditto the hot-water heater, which is basically just a big dumb tank in which hot water sits, cooling off and being reheated until it’s used.

For this and other reasons, he successfully sold me on getting on with a high-efficiency upgrade forthwith. Among those reasons was the fact we’d be eligible for a $600 help-out grant from the Canadian government through its ecoENERGY program, and one from the Ontario government to match it. Ballpark, the job will cost something like $10,000, but we’ll start seeing savings on the gas bill right away, and $1,200 worth of help would sure take some of the sting out.

I hit the Web, looking for details.

Argh!

We are eligible for the $1,200 in grants if we follow this procedure:

  1. Have an energy audit done on the house. This is a two- to three-hour process, generally available only during weekdays, and it costs $350 by itself from a local non-profit that does them (the Ontario government will kick back a bit of the cost). A report would take two to three weeks to get afterward.
  2. Then we’d get the new system.
  3. Then we’d have a second energy audit to demonstrate we’d done the work.
  4. Then we’d apply for the rebate. We’d also get some proportion of the $350 back, too, but we’d only be eligible for the full amount if we followed all the audit’s recommendations, whatever they might be. In an old house, the things we could do might be staggering.

This is accountability run amok. Two separate inspections, a delay of many weeks (with winter approaching), and so much out-of-pocket spending on the accountability process that it eats up a sizeable chunk of the benefits we’d get.

The point of these audits is to grasp the so-called low-hanging fruit, to help people do the stuff that has a financial payoff as well as an immediate environmental one. Somehow, I won’t be surprised if this one fails.